Waves are hard to predict. Several years ago, when our son was a toddler, I had let him walk on the beach by himself, only to watch him get literally rolled over by a wave. I had been watching for big waves but didn’t expect the small waves to have so much effect. There are a lot of investors watching for waves right now.
Investors were hoping all the extra cash savings from the pandemic years would start moving from money market funds into stocks in a wave that would give the market a big boost. Those trillions of dollars might not be coming in, and the investors betting on it could be disappointed.
There is No More Excess Savings
“Excess Savings,” which the market calls any savings amount above the average 2019 savings percentage, has been a popular topic among market analysts. The San Francisco Fed reports that excess savings peaked at $2.1 trillion in late 2021 when many Americans were receiving pandemic-related stimulus while not spending much in the weeks after the end of the lockdown.
Beginning in 2022, Americans made up for lost time by spending more than usual on almost everything. Sadly, savings amounts have fallen below the 2019 totals, proving that new spending habits are hard to break. As savings dwindle and credit cards max out, Americans may slow their spending, which could slow economic growth.
Consumer spending is a sizable part of the economic engine, and the consumer has been supporting economic growth. According to the Bureau of Economic Analysis, consumer spending continues to increase month after month, but can it continue to do that?
There’s Hope
Yet, many American households are financially healthy because of low fixed mortgage payments. A sizable number of households, especially upper-income households, refinanced their mortgages after the pandemic before the Fed started raising rates, and they now have historically low mortgage rates. The extra money saved from lower mortgage costs will probably offset the lack of excess savings going into the market.
With money market and CD rates higher than they have been in years, many people are more comfortable staying in cash. Then again, as rates begin to tumble, there will likely be cash investors returning to stocks because of their long-run potential. I suspect many of those cash investors will do so begrudgingly, wishing that they could stay in CDs and still have a high return.
That day on the beach, my son was crying from all the sand on his face, and my wife was mad at me for not watching him closer. There are definitely some factors to be watchful of, which is why I believe active investment management is best, especially during times of volatility. Don’t focus on the day-to-day market news; stay focused on your investment plan and reaching your long-term goals. By the way, I watch stocks better than I watch toddlers.
Have a blessed week!
Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
